By Martin Chilcott, CEO of Manufacture 2030
Article 2 of 4 - Measurement
“For 12 years, we’ve pioneered new ways to spread sustainable practices across manufacturing supply chains. We partnered with some amazing brands like Tesco, GSK, Asda-Walmart, Coop and Unilever… Not everything we tried worked, but a lot did. And we made it our mission to learn even more. …. This is the summation of those best bits.”
This is the second article in a four-part series written for an audience with a manufacturing supply chain. It’s perfect for you if you know what areas you need to focus on, have a Scope 3 target and you are now faced with a practical question of how best to achieve that target with confidence. But, it will still be useful even if you are working these things out.
In the first article, I gave an overview of the three steps that are essential to achieving your Scope 3 supply chain, carbon reduction target. To recap, those three steps were:
Measure: wherever possible, go beyond historical, enterprise-level data collection and measure in detail each supplier’s baseline carbon emissions (Scope 1, 2 and 3) and their estimated glidepath towards your target based upon their reduction action plans.
Manage: use the glidepath data you have collected to understand your suppliers' gap to your target and manage their progress to close that gap.
Improve: accelerate improvement by building the suppliers' capacity, focused specifically on closing their identified gaps to your target.
You need to be able to do this at scale: hundreds and thousands of times simultaneously and that will require technology.
In this article, we are going to dive into step one: Measure.
First, a quick health warning. Although, in this article, we are talking about the ‘measure’ stage in the process, if your objective is to reduce emissions it is essential that ‘measure’ is part of an integrated process with ‘manage’ and ‘improve’; looping back to ‘measure’ and so on (see diagram 1). Don’t just start by ‘measuring’ - start a process that involves all three.
Punch drunk suppliers
Secondly, much of what I am going to share upfront is really about your suppliers and how to get them onboard and owning the program with you. That way, ‘measuring’ and everything else for that matter is much easier.
Every corporation taking climate change risk seriously wants to collect data from their suppliers. Normally, lots of it, because:
They have immediate reporting pressures.
They know that without measuring they can’t manage.
They don’t want to miss anything important.
They hope that the data will tell them what to do.
But suppliers are punch drunk with requests from their customers; cynical about motives and sceptical about whether the data they go to great lengths to provide will be used. As a result, supplier engagement is often low, relationships can be unsettled and the ultimate results disappointing.
9 lessons from 12 years - to make data collection a success
So here are nine lessons from 12 years of working within manufacturing supply chains that will help you to get the right data, in the right way, from suppliers who are mostly happy to provide it:
Don’t approach all your suppliers about everything all at once. Segment your supply base and start with a strategically important subset with whom you are pretty sure you will make good progress and build momentum from there. If you haven’t already done it, start with a simple Scope 3 Cat 1 spend based assessment to identify priority groups. A good tool is GHG Protocol's Scope 3 evaluator.
Don’t ask for data. Focus on the bigger picture, explaining the purpose, importance and mutual value of achieving your carbon target together. Be crystal clear about why hitting your targets is so important for your organisation, your suppliers, your industry (and yes, even the planet). You should be firm (even if participation is not mandatory); and don’t do anything that gives the impression that this is not super important to you. Of course, you will need to ask for some data in order to measure and manage to achieve your objectives, but it is the bigger picture that matters.
Do something with the data. Make it clear to your suppliers from the outset exactly what you are going to do with the data and how it will create value for them as well as you.
Only ask for what you need now. You are going to be tempted to collect lots of data from the get-go. Don’t. It will slow you down and lower engagement levels. When it comes to data, perfection is the enemy of progress. Build your ask over time. Start by demonstrating value to your suppliers with the most important data subset. Then, once the habit of sharing this data is in place, go back and ask for more, but always be clear as to what you are going to do with it and how it will build mutual value.
Make it as simple as possible. The levels of supplier engagement fall off rapidly if collecting and calculating the data you ask for is difficult - this is particularly true for smaller and less mature suppliers who most need help and encouragement. There are plenty of carbon calculators on the market today. We built one into the Manufacture 2030 platform. For Scope 1 and 2 calculations it mainly uses readily-at-hand utility bills and turns a basket of metrics (KWh, MWh, MJ, GJ, TJ, kcal, mmBtu, Therms) into one common, comparable carbon equivalent. It takes on average 30 mins to establish a site Scope 1 and 2 footprint using it. To calculate the suppliers' own Scope 3 Cat 1 figure, the platform also does the heavy lifting.
Do it together. If you can do this in conjunction with your peers, with whom you have an overlapping supply-base, it will boost supplier engagement and the quality of the data you collect. When Toyota’s tier 1 suppliers in North America were invited to work alongside another automotive company using the Manufacture 2030 platform, the company's own supplier engagement levels almost doubled. Warning: it is usually easier to collaborate with just one or two peers, gradually adding more, rather than corralling an entire industry at once, which can often delay progress.
‘The Golden Rule’. If you intend on collecting data which shows the potential carbon and financial savings your suppliers are planning to make (e.g. from improved resource efficiency, or a change in procurement practice) then it is critical that your suppliers are confident they can keep the money they save as they become more resource efficient. Crawl all over your supplier’s carbon, water and waste data but don’t look at their financial savings. Suppliers using the Manufacture 2030 platform can see what they are likely to be saving financially through implementing their action plans (see below) but their customers can only see the the environmental resource changes.
Educate your own supplier management and procurement teams. Make sure your own supplier facing colleagues are fully briefed. If there is even just a whiff of an impression that you may not be joined up around this “carbon stuff” it will seriously compromise success. The Sustainable Procurement Pledge is worth checking out if you want more information on this topic.
Going down through the tiers. Collecting your tier 1 suppliers’ Scope 1 and 2 data is relatively straightforward. But you will almost certainly need to measure and reduce the GHGs of their suppliers or purchased goods and services in order to hit your Scope 3 target. This is a complex technical subject and so I won’t cover it in detail here but there are three broad approaches that in combination certainly move the dial:
I - You reach directly beyond your tier 1 suppliers, with the risk that your contacts are weaker, and you are less immediately relevant to the suppliers, so engagement is lower.
II - You ask your suppliers for data on their own Scope 3 emissions (Category 1 purchased goods and services in particular). In the absence of product specific LCA data and to make the task of collecting the data simple enough to be practical, the initial data will usually be estimated using the GHG Protocol Scope 3 Guidance and Standard and say factors from a Multi-Regional Environmentally Extended Input-Output Table. You can work on refining this over time. The important thing is to get going.
III - You partner with your larger tier 1 suppliers to ‘cascade’ your approach to their suppliers, using the same platform.
What sort of data should I collect?
You can’t drive forwards looking through the rear-view mirror.
Most supplier data collected tends to be estimated, high-level, historical and at an enterprise level. This is absolutely fine for establishing materiality hot-spots and assessing overall risk and in certain circumstance is the only option. You may have done something like this to establish your target and priorities. However, it is not sufficiently accurate and detailed (nor is it looking in the right direction) to help you manage your suppliers to your future target with confidence.
Of course, it is most detailed and accurate to work with your suppliers to carry out a Life-Cycle Assessment (LCA) of your products. However, this is complex, expensive and very demanding of your suppliers. It can be justifiable in certain circumstances, for key products and strategic suppliers, but it is not normally a practical option for the bulk of the supply chain, at least initially. However, you might consider encouraging each of your key suppliers to carry out a limited amount of targeted LCA work (so limiting the burden and cost) and share the resulting data. This way, you should, over time, build up a robust product specific data set without overwhelming suppliers.
In the meantime, a practical compromise, which is still sufficiently detailed to give you confidence that you will reduce your Scope 3 emissions and hit your future target, is to collect data:
From the specific supplier sites, wherever possible, that supply you.
That generates forward visibility of whether they are likely to hit your target (and the size and nature of the gap if they are not) based on their activities in their own operations and for the goods and services they are purchasing (and then processing), in order to supply you.
Forward looking data of this sort can give you the visibility that you need, to know you can manage your suppliers to improve those specific areas of their business operations (e.g. particular manufacturing processes, energy sourcing or materials purchasing) that will enable them to close that gap to your target.
This forward visibility comes from collecting three types of data, ideally at the site-level:
- Baseline Data (Where are they now?): The Baseline from where suppliers start this journey with you. What is the footprint of each of your supplier sites today and what part of that footprint is yours? (This is their Scope 1, 2, & 3)
- Glidepath Data (Where are they heading?): The ‘glidepath’ that they are on towards your target. What is the likely rate of reduction in their emissions driven by current or planned initiatives and how far off from hitting your target are they? To build the glidepath, ask each site to give you action plans of initiatives they intend to implement to reduce their emissions. Action plans can include a range of initiatives from: energy efficiency projects, to changes in purchasing (e.g. a switch to renewables or a more sustainably sourced raw material).
- Gap Data (How far off course are they?) - What are the specific ‘gaps’ that need closing to hit your target at each site and how can the suppliers improve their site-specific action plans to close them. If you have the right type of platform much of this will be generated automatically for you and the supplier - more on this in the article on ‘Improvement’.
If you broadly follow the nine lessons, you will get good engagement from most suppliers. If you focus on collecting the right data to help you measure and estimate the likely glidepath of each of your supplier sites, you will gain visibility of their individual gap to your target. The two in combination will give you the ability to manage your suppliers, at scale, to your target; giving you the insight you need to help them improve their capacity to implement the specific action plans that are necessary to close the (almost) inevitable gap.
In the next article, we will cover how you can use the data and insights you have generated from successfully measuring, to manage your suppliers to close the gap to your target.
You can read part three of this four-part series, 'Management', here.